SAMAF- Budget And Strategy Meeting 08/09, SEDA – Business Plan And Budget 08/09

Meeting report

South African Micro Finance Apex Fund (SAMAF) Briefing
Mr Sithembele Mase, CEO SAMAF, described the mandate of SAMAF, which was centred on contribution to the reduction of poverty and unemployment. The full mandate and all its components were fully described in the presentation. He then moved on to present an outline of the achievements over the last year. Figures were provided of loans disbursed and those that were approved. Detailed breakdowns were given, and SAMAF also showed how much was spent on capacity building, as against approvals for this purpose. A breakdown was also given for the allocations across the provinces.

The numbers of borrowers were broken down into categories. Women borrowers accounted for 66% of the allocation while loans to the disabled accounted for 1%. The presentation also gave a break down of the equity profile of the staffing and Human resources, showing that 79% of staff were African while 9% ere white. Of the appointments made last year, 61% were females.

The presentation moved on to discuss the vacancies, which had reduced from March 2007 to February 2008. In March 2007 there were 47 filled and 28 unfilled positions. In February there were 54 filled posts and 21 vacancies.

The presentation then went on to highlight some of the challenges faced by the institution. The main problems were delayed staffing for the Northern Cape, poor capacity to disburse funds, high failure rate of funded institutions and the lack of a delivery network for the institution.

The strategic objectives were to increase access to micro-finance through wholesale funding to development financial intermediaries. SAMAF also intend to increase support for capacity building and sustainability to financial intermediaries that provided savings or credit. In addition it would support the development of effective micro-finance networks, strategic alliances and partnerships. It would also participate in policymaking and create a centre for learning for micro-finance. Finally it was intending to build a strong and capable Apex fund leading towards the establishment of SAMAF as an independent legal entity.

The budget figures for the forthcoming year were presented, setting out details of expected expenditure and transfers over the three year Medium Term Economic Framework (MTEF) period. (See attached presentation for full figures).

Small Enterprise Development Agency (SEDA) Briefing
Ms Wawa Damane, CEO, SEDA, began her briefing with a description of the vision, mission and goal of SEDA. Its goal was to be the centre of excellence for small enterprise development in South Africa. The objectives included the enhancement of the competitiveness and capabilities of small enterprises through co-coordinated services, programmes and products. SEDA would also ensure equitable access for small enterprises to business support services through partnerships and strengthen the organisation to deliver on their mandate.

In order to achieve these objectives SEDA intended to improve customer focused service delivery. It would also improve co-ordination and harmonisation with role players and build a performance driven organisation. Finally it intended to achieve financial stability and sustainability.

The key initiatives included the SEDA learning academy for Small, Medium and Micro Enterprise support practitioners. In addition it would attend the Small Enterprises Agencies Forum. There was to be a focus on 2010 projects for small enterprises. It would also work in partnership with the World Trade Point Federation and local chambers on the Trade Point. Through the Ten Set Products and Services for preferential procurement, SEDA intended to set up platforms to ensure maximum participation. Finally it would also work on the Hotline services and work on better co-ordination with municipalities and service providers.

Ms Damane then went on to list the national and international partnerships (see attached document for full details.)

Finally Ms Damane gave a summary of the outreach program for 2007/8 and the roll-out. She explained that Kwazulu Natal (KZN) had the most number of centres while Gauteng had the least. She also showed that most targets for the roll-out were reached. The target for technology centres was achieved. The only problematic area lay with the Enterprise Information Centres (EIAs). Out of the 90 targeted only 53 were completed.

Mr Kogomotse Kgantse, COO, SEDA, continued with the presentation. His focus was on technology support. He explained that technology was making a big difference to productivity. He said that one of their projects had secured a contract with Boots and Emirates Airlines and they had also managed to sell 25% of their business for R7million.

The highlights for 2008/9 were that 5 new centres were to be established. Other sectors would be extended. SEDA would also be trying to increase access to technology services and provide integrated support packages for SMMEs from the government.

He explained that there were three stages to the proposed budget. The first focused on strengthening SEDA’s capabilities. The second contained their response to external forces. The third dealt with strategic opportunity.

Mr Kgantse highlighted that the trend for the budget thus far had consisted of continuous growth. A breakdown of the financial review was provided in the document.

Mr Kgantse explained that the percentage of expenditure per category was 51% for programme costs, 27% for operational costs and 17% for staff costs. He explained that R535 million would be required for 2008/09 if SEDA was to achieve everything it should, but if it was to cut down to the bare minimum of activity they R382 million was required. The larger amount would be preferred in order to improve SEDA and in the interests of the public.

He explained that the major increase was due to additional products, the need for procurement support, the creation of the customer hotline, and repackaging of products to enhance the reputation of SEDA. He said that some of the challenges faced included the tightening of monetary conditions (prime rates now at 14.5%), the Consumer Price Index, power outages and building working relationships with stakeholders.

Finally he said that SEDA as ready to take on initiatives that positioned Small and medium enterprises in the mainstream economy.

Discussion
Professor B Turok (ANC) was disappointed that the presentation had not given a full picture of the challenges faced by SAMAF. He said that it was necessary to ascertain what the total need was and how far the Department had gone with regard to fulfilling this need.

Mr Kgantse explained that it was difficult to say what the total need was. He said that there were those people who were aware of the programmes and then there were others that required to be specifically informed. He accepted that there were many challenges. He highlighted that the potential was there and the main problem was ensuring full access. He said that SAMAF had begun to resolve this issue. The OR Tambo Development Bank of SA was helping them to produce a high quality product called ‘Sakha Isintu’ which was set to be educative and effectively informative.

Professor Turok went on to say that both presentations had focused on financial issues but had not referred to policy issues at all. He said that Committee would like to know the future plans of the institutions. He explained that he had attended a meeting in his constituency where the public had asked when SEDA would be coming to their constituency. He said that in the past he had requested SEDA to look into this, but to no avail. He stated that the roll-out was disappointing.

The Chairperson interjected and informed Professor Turok that policy issues would be discussed with the government at a later stage. 

Professor Turok then asked why there was a high failure rate for small businesses. He expressed that it was not enough for SAMAF to say that this was an international phenomenon. He said that SAMAF must research and find a solution to this problem.

Finally Professor Turok commented that the allocation for both SAMAF and SEDA was too little given that the need was apparently large.

Mr Mase explained that R13.5 million was being allocated for capacity building this year.

Ms Damane said that the budget for SEDA was indeed too small. She noted that SEDA would not be able to over-extend itself (to play the role of business unusual) on this budget. However SEDA had entered into some partnerships in order to be able to go further with its programmes. SEDA had a partnership with the Durban Municipality University and the Platinum Trust of SA to train people on how to handle metals. She said that this would offer the beneficiaries job training from a real perspective.

A Member pointed out that it was unwise to underestimate the cost of capital, as it could be very expensive. She went on to suggest that the economies of scale should be modeled on the Indian version. She also said that SAMAF and SEDA should also consider branching into rural areas where there was no infrastructure and where the need was always greatest.

Mr S Rasmeni (ANC) highlighted that there was a need to strengthen these institutions and to partner with SMMEs in order to promote local and regional development. He said that it was necessary to pay heed to the advice given by the President in his State of the Nation Address. He had in particular said that the two institutions must conduct their work as ‘business unusual’. He said that it was imperative to bridge the gap between the rich and the poor.

Ms F Mahomed (ANC) commented that although much had been accomplished, there was still a lot to do. She asked if SAMAF could provide the Committee with their roll-out figures. She was especially interested in the figures relating to bad debts.

Mr Mase responded that roll-out figures would be provided. He said that SAMAF had started off with a roll-over figure of R15 million but this year it was expected to be R22 million.

Ms Mahomed congratulated SAMAF on the fact that it had a high percentage of women employed, but asked what ranks they were occupying.

Ms Mahomed also noted that the staff turnover was high. She said that this could affect the institution’s efficiency. She said that the problem was that a person making an application would end up dealing with a different member of staff at each stage of the process.

Mr Mase said that when SAMAF started off last year it had a lot of contracted workers whose contracts came to an end and were not renewed. He highlighted that there had been only two resignations since the inception of SAMAF. In regard to vacancies, it was noted that SAMAF was trying to close the gap. The problem faced when hiring was that questions had to be asked around how the position would assist in operations.

Ms Mahomed added that the high number of vacancies was a sign of weakness. She explained that she acknowledged that much good work had been done but noted that there was still a lot to be done. She stated that the Committee would also like to play a role. She said that in her Constituency, she would be hosting Department of Trade and Industry (dti) workshops and several other initiatives.

Ms N Ntuli (ANC) asked the delegation from SEDA to clarify how they went about their national partnerships. She said that she was worried that they were partnering with failing institutions. She also asked what they were gaining from their International Partnerships. She added that she also wanted to know what the relationship was with the bank.

Ms Damane explained that there was an ABSA programme within the SEDA offices whereby SEDA could vet applications for loans before they actually reached the bank.

Ms Ntuli also asked SEDA to list their accredited training institutions and also define their geographical spread.

Mr Mase explained that SAMAF was planning on building centres of learning and hoped to reach the target by the end of the year, although there were no guarantees that this could be done. He added that micro-finance would get its own academy. He assured the Committee that the targets would be achieved in the next three years.

Ms Ntuli asked SAMAF how it worked together with the Alliance of Financial Institutions of South Africa (FISA)

Mr Mase explained that FISA was a lobby group with whom SAMAF had partnered. He said that it would often engage with FISA, and FISA in turn offered SAMAF advice. He said that it was not a political alliance.

Ms Ntuli also asked SAMAF to explain to the Committee how many staff had been trained and how it measured the success rate.

Mr Mase said that SAMAF had begun to tighten recruitment. He added that it had embarked on intense training programs. It tried to ensure that skills training was being standardised. With regard to the small businesses themselves, SAMAF would encourage them to appoint service providers who ere qualified, such as bookkeepers.

Mr Mase went on to say that SAMAF was working on pilot projects with the Sector Education and Training Authorities, and would conduct training sessions. He said that they would conduct tests to assess that training ensured skill.

Professor ES Chang (IFP) asked SEDA how would identify and approach its target market. She explained that one of the challenges people faced when wanting to start a business was that they needed many skills such as marketing and finance. She asked how SEDA intended to ensure that its clients had the necessary skills. She said that at the moment South Africa did not have adequate resources to support a training programme on this level.

Ms Damane said that incubators actually helped people to build their own market.

Professor Chang also stated that the main focus for industry should be manufacturing because South Africa has raw materials that were being exported since there was very little manufacturing taking place in South Africa. She suggested that instead of exporting, people in South Africa should, for example, be trained to cut diamonds. She suggested that SEDA must consider a 15-year policy plan and it would see how this would pay off.

Mr Mase responded that there ere two types of training institutes. He said that SAMAF would focus predominately on training in financial services in rural areas, where the skills capacity was low. Three levels of board, management and staff would be targeted. The Board would be trained in good governance and basic skills such as how to create company constitutions and to how to implement policy. Management level would receive instruction in marketing, customer services and legislative frameworks. At staff level there was more focus on the management of accounting records, how to deal with delinquency, and recruitment strategies.

Mr S Maja (ANC) commented that industrial development was still limited to urban areas. He said that the amount allocated to rural areas versus that allocated to urban areas was such that it maintained the gap between the rich and the poor. He also asked what the criterion was to determine the percentage of these allocations.

Mr Maja went on to ask whether there were any programmes within SEDA and SAMAF that particularly targeted women, youth and the disabled in rural areas.

Ms Damane said that there were incubators that focused on empowering women. She also said that there were attempts to encourage female post-graduates to research into business ideas.

Finally Mr Maja asked how the institutions intended to address illiteracy and reach those who may not have access to the common types of media and thus did not have any information regarding SEDA and SAMAF.

Mr S Njikelana commended both teams for a job well done. He said that the SEDA initiative in his Constituency was an example of keenness and progressing the growing relations between the institutions and the Committee.

Mr Njikelana asked what was being done to capacitate small businesses to ensure that they did not succumb to the high failure rate. He suggested that SAMAF should look at international comparisons.

Mr Njikelana also questioned why the repayment rate was so low. He said that SAMAF must work to ensure that this figure increased. He said that India used to have a repayment rate of 80% and this was a good example to follow.

Mr Mase explained that the Indian version was a long-existing institution and they had had time to increase their repayment rate. However he assured the Committee that SAMAF was trying to emulate the Indian model and to learn from it. He said that challenges were faced around the differences in policy. He said that the Indian team was very competitive and that the challenge was to increase competitiveness in South Africa.

Mr Njikelana commented that SAMAF was working well in his constituency and he invited the other Members to come and visit and see this for themselves. He went on to say that in response to the State of Nation Address, SAMAF must focus on municipalities. He added that he was shocked not to see Government Communications on the list of SAMAF partnerships. He also commented that SAMAF did not have any partnerships with India or any other neighbouring countries.

Mr Njikelana asked SAMAF to explain the difference between level one, two and three risk.

Mr Mase explained that Level 1 was the novice level and that level 4 was the optimum level whereby the institution could cover its own risk. Matters used in the calculation of risk included turn around time and reputation risk.

Mr Njikelana also stated that the 50/50 allocation for programmes allocation by SAMAF was not correct.

Mr Mase responded that since SAMAF was only in its second year of formation it was still trying to establish itself in the provinces and as such still needed a lot of funds for its operations. This allocation covered salaries, training, acquisition and other capital expenses. 

Mr Njikelana asked whether SEDA had measured compliance with regards to their technology programme. He said that it was important for it to improve on the technology programme. He noted that SEDA was claiming a large improvement and suggested that this should be revisited later on during the year. Finally he echoed sentiments of his colleagues that the objective of the dti was to broaden national participation in order to restore the economy.

Ms D Ramodibe (ANC) said that it was time for ‘business unusual’. She said that after 14 years in government there was still a large majority living in poverty and this was not acceptable. She said that there was a need for a change to try and bridge the gap. She commented that perhaps in future the Committee would receive a breakdown of how many survivalists, SMME and big companies there were in South Africa.

Ms Ramodibe also commented that there was still some disproportionality with regards to the sexes when it came to staffing in SEDA. Finally she said that monitoring was necessary to ensure that the goals of these initiatives were being realized.

Mr Mase said that there were mechanisms in place to measure performance of management systems. He said that SAMAF ensured that targets were reached. He said that SAMAF also had an executive committee that received reports on performance and that conducted reviews of such performance.  He said that there were annual meetings with Financial Intermediaries to allow them to engage with regards to policy. He said that it was open to criticism if there is a need to improve.

He added that SAMAF was trying to ensure that it succeeded with its targets. He said that the turn around time was being reduced from 96 to 88 days. He said that the plan was to eventually cut down turnaround time to 60 days.

Ms Damane said that SEDA was working closely with the dti to establish Hotline services in terms of how the programmes should be set up and run. There would be a report back on timeframes.
She explained that a hotline was recently established in the Western Cape. She said that part of the challenges were that the hotline had not been adequately advertised. She said this would be rectified.

Mr Kgantse added that there was a need to establish more technical support. He said that the business advisors available could not cope with the numbers. He said that it would help if people came together with united proposals that could be dealt with at once. For example, if farmers had a question they should come together as a united front.

The Chairperson stated that there was a need to try to put sites closer to rural areas so as to service the poorest of the poor. He also said that people could be deployed to inform and educate the rural areas instead of waiting for people to come and find the SEDA offices.

Mr Tshediso Matona, Director General, Department of Trade and Industry, said that he acknowledged that the reports focused on strategic issues and operational matters. He said that at least it was clear that the institutions were doing well to improve their systems. He said the work of these institutions was probably one of those most complex that the government had undertaken. However he said that it was necessary for them to explain what challenges they had been facing. He said part of the problem was that all three tiers of government had competence but were difficult to co-ordinate.

Professor Turok added that the institutions must extend their services. He said that they were operating on a small scale and they needed to maximise their projects. He said that this must be enabled through more robust mandates. He concluded that there was a need for evidence-based approaches and as such research must be done to discover the baseline.

The meeting was adjourned.